The latest quarterly statistics on “expatriation” were published by the IRS just a few days ago.
A total of 1,130 names appeared in the latest list. This happens to be many more than any previous quarterly total. And it is more than the total number of expatriations reported in all of 2012.
There’s a lot of media hoopla about the whole story. But we are not sure we can trust these expatriation statistics. The numbers don’t appear to be all that accurate. And neither does the commentary around it.
To start with, the real numbers of expatriation are much higher.
We’ve experienced this in our own practice. The names of only one-third of clients we’ve helped expatriate have ever shown up on the list.
Based on our research and experience, we suspect the real number of expatriations is around 50,000 a year.
But regardless of what the real numbers are, one thing is certain: They are rising and the U.S. government is the reason.
The Real Reasons Why Americans Expatriate
The mainstream media would have you believe it’s all about taxes. And to a certain degree, that’s true. Taxes are part of the reason. But it’s definitely not the whole story. Many expats live in countries where taxes are even higher than in the U.S.
The real reasons are often much more practical. Citizens of the good ol’ U.S.A. have become pariahs on the world stage. The U.S. government’s efforts to leave no tax-stone unturned have made it virtually impossible for Americans to bank freely in other countries.
Here’s one example: Not too long ago, a bank cancelled one of our client’s mortgages after it found out she had an American passport.
Insurance is another practical issue. It’s become nearly impossible for a U.S. citizen living overseas to obtain an ordinary life insurance policy. Just like some banks, some insurers don’t want American clients.
More Expatriation Reasons
You can find more information here on why Americans choose to give up their U.S. citizenship here: expatriation reasons.
Other clients tell us they can no longer do business internationally, because prospective business partners shun them. Their maybe-partners assume (in some cases, rightly) that doing business with a U.S. citizen or permanent resident opens the door to continuous surveillance of their own financial affairs by the IRS.
What About “Covered Expatriates”
While admittedly it applies to only a small percentage of the expat population, there’s some risk in becoming what the authorities call a “covered expatriate.” This includes having a net worth of more than $2 million at the time of expatriation.
And the consequences are serious.
Here is one example. You may be forced to pay a hefty exit tax on all unrealized capital gains on ALL of your assets. In other words, a sizeable tax bill even though you had no intention of selling those assets.
And when you actually do sell the asset, your newfound home might tax you again on the capital gain. In effect, it’s double taxation.
That’s why some people – mainly up and coming entrepreneurs and high value executives – choose to opt out before they hit the threshold.
Is Expatriation Right for You?
If…
- You’re comfortable living outside the United States, or are already doing so.
- Your spouse and minor children are comfortable living outside the United States, or are already doing so.
- You have already or are capable of shifting the majority of your income and assets outside the United States.
- You understand the tax implications of expatriation and can minimize or eliminate the possibility of “double taxation.”
- You already have a non-U.S. citizenship and passport, or can acquire one in a reasonably short period of time.
- You’re willing to take the chance, however remote, that you might be permanently excluded from ever returning to the United States.
…then yes, expatriation may be appropriate for you.
Are You A Good Candidate for Expatriation
To expatriate is a big decision. One that has implications far beyond possibly paying an “exit tax” upon your permanent departure.
Expatriation means, for example, that you no longer have the automatic right to enter or live in the United States. You’ll need to get a visa to do so, unless your non-U.S. passport qualifies you for visa-free entry.
Before making this decision, review several key factors to ensure it’s the right choice for you.
You can find more information here: Are you a good candidate for expatriation?
But, it’s definitely not for everyone… Like most important things in life, there are benefits as well as risks.
Unless you said “yes” to most questions on that little quiz above, you might be best served to focus on all the other areas of asset, privacy, and personal freedom protection…
- Securing your assets from prying eyes and sticky fingers.
- Building a strong privacy shield to remain under the radar.
- Looking at 2nd residencies and passports, “just in case.”
You can still protect yourself pretty well while remaining a U.S. citizen. It’s still possible and well worth doing.
The Importance of Getting a Second Citizenship Before You Expatriate
Although it’s not legally required, a second passport from another country is strongly recommended before you give up your U.S. citizenship.
Without a second citizenship, the act of expatriating will render you stateless. You won’t have the right to legally live anywhere. Stateless people who manage to stay out of detention camps and refugee centers live on the margins of society, since they lack official papers. In most cases, the only way they can qualify for legal residence is to make a successful claim for refugee status.
For an entertaining, but romanticized, view of statelessness, watch The Terminal. This movie is based on the true account of Mehran Karimi Nasseri. After being expelled from Iran, he spent 18 years living in a departure lounge of the Charles de Gaulle Airport in Paris until he finally qualified for refugee status in France.
How to Get a Second Passport: 7 Legal Ways
Thinking about a second passport? There are just seven official (legal) ways to get one. Find out which one is the best option for you: How to get a second passport.
Need Help?
We can assist in every phase of giving up your U.S. citizenship or long-term residence. This includes helping you get a second passport before giving up U.S. citizenship.
And if you’re not ready to expatriate, we can help you take advantage of tax breaks in the Tax Code that apply to U.S. citizens and permanent residents living overseas.
Schedule a free no-obligation consultation with a Nestmann Associate to see if expatriation is right for you.
